Friday, June 25, 2010

EU Said to Discuss Applying Stress-Tests to Cajas

By Ben Moshinsky

June 25 (Bloomberg) -- European Union officials are meeting today in Brussels to discuss whether Spanish savings banks and Germany’s state-owned regional Landesbanken should be included in the current round of stress tests, according to two people familiar with the discussions.

The meeting will also examine whether to include the chance of a sovereign-debt default in the stress test scenario and on which day to release the results of the tests, said the people, who declined to be identified because the discussions are private.

“Commissioner Barnier has stated he believes in the principle of transparency is essential,” Chantal Hughes, spokeswoman for financial services commissioner Michel Barnier, said in an interview today.

EU leaders agreed last week to disclose how banks perform in stress tests, seeking to show investors that the financial system can withstand shocks. German Chancellor Angela Merkel’s government won’t compel banks to agree to the publication of the tests, relying on market pressure for transparency to achieve the same result.

The Spanish government has said it is already performing stress tests on its 45 savings banks, also known as cajas.

The meeting will include officials from the European Central Bank, national governments in the 27-member bloc, the European Commission and the Committee of European Banking Supervisors.

Cross-Border Banks

European authorities have come under pressure to widen the scope of the stress tests, which so far only include large European cross-border banks.

“We cannot judge how serious the situation is until the results are published,” billionaire investor George Soros said in a speech in Berlin on June 23. “Indeed we shall not be able to judge even then because the report will deal only with the 25 largest banks and the biggest problems are in the smaller banks, notably the Cajas in Spain and the Landesbanken in Germany.”

Germany’s Landesbanken and savings banks will probably write down $143 billion for the years 2007 to 2010, the International Monetary Fund said in April.

Spanish savings banks may borrow around 10 billion euros ($12.3 billion) from the country’s bank-rescue fund, known as the FROB, Bank of Spain Governor Miguel Angel Fernandez Ordonez told lawmakers in Madrid on June 22.

Adair Turner, chairman of the U.K. Financial Services Authority, said he’s confident that U.K. banks will pass European Union stress tests in a speech in London yesterday.

“The domestic stress tests are more severe” than those being conducted by the European Union, Turner said. “We are not at all concerned,” he said. “We have been doing very extensive stress tests.”

The U.S. last year released the results of evaluations it carried out on 19 financial institutions to determine whether they needed more capital following the subprime mortgage crisis.

To contact the reporters on this story: Ben Moshinsky in Brussels at bmoshinsky@bloomberg.net;